Carry Trade & Earnings - 10/21/24

Tune in to learn about what happened last week in the Global Markets, and some major events happening this week to watch out for!

Episode Transcript

(00:00):
I don't know.
Game on.
Hello, everyone.
Welcome to paramount wealthperspectives.
Your go-to podcast for thelatest updates on global markets
and current economic events.

(00:21):
This is your host, Chris Coyle.
Each week we strive to bring youexpert analysis on market
trends, economic shifts.
And key financial developmentsfrom around the world.
Whether you're an investorbusiness leader.
Or simply curious about theglobal economy.
Our podcast is here to keep youinformed and ahead of the curve.

(00:41):
Now let's dive into the marketsand explore what shaping the
world of finance today.
Here with us today.
We have Scott Tremlett chiefinvestment officer and managing
partner at paramount associates,wealth management.
Scott looking back at last week,what are some major events you
would like to highlight?
Thanks, Chris.
Us stocks ended the week higheras the Dow S and P 500.

(01:03):
And the NASDAQ all gained forthe six consecutive week.
The S and P 500 did hit anotherrecord high on Friday.
As for the economic reports.
The Philly fed manufacturingindex was stronger than
expected.
Meanwhile, the New York fedsempire manufacturing index
reverse to the negative.
Us manufacturing has beencontracting now for 24 straight

(01:26):
months.
And it's really hard to seeimprovement with new orders
lacking at this point.
Housing prices exceededexpectations.
However, housing starts andpermits.
Both fell below forecast.
While home-builder sentiment.
Saw a slight increase.
Weekly mortgage applicationsdropped sharply due to rising

(01:47):
interest rates.
Interest rates continue thehigher for longer path.
As the federal reserve Bosticsaid that the fed is not in a
rush to get to the neutral rate.
He did offer three and three anda half percent as the neutral
rate that they are targeting.
This is prompting us banks toconsider aggressive cuts to
interest payments.
As they do look to protect theirmargins.

(02:09):
I know the interest rates aresomething you've placed.
Great emphasis on lately.
In fact, in your 2024 globalmarket outlook.
Which is available on ourwebsite.
You discuss how interest ratescan impact international
investments.
Could you please elaborate onthat?
Absolutely.
Quickly.
This is not an endorsement of aninvestment strategy that

(02:31):
investors should take onthemselves.
Please consult an investmentadvisor.
Give us a call.
What you are alluding to Chrisis what's called a carry trade.
Carry trade is when an investorborrows money in a currency with
a low interest rate.
And then invest it.
And the currency with a higherinterest rate.
Some do go a step further andthen use the higher interest

(02:54):
rate currency they own topurchase other investments.
The investor is looking to earnthe spread.
Or the difference between thetwo rates.
This can create risks forinvestors when the currency
valuation moves against theirpositioning quickly.
As an example, this, it didhappen in early August when the
bank of Japan raised interestrates.

(03:15):
And at the same time, thefederal reserve Telegraph
cutting rates.
Central bank policies do movecurrency valuations.
And this time the yen surged asinvestors had the purchase yen
to cover short positions and theJapanese stock market dropped
nearly 20%.
in just two trading days.
I would have to agree with you,Scott and I can see how

(03:36):
investing in internationalmarkets come with additional
risks.
You mentioned last week thatthere were some international
economic reports coming.
What did you see there?
We will start with China.
China numbers couldn't keep theChinese stock market from
falling.
Another two plus percent.
But on the positive side,Chinese retail sales had its
biggest year over year increasesince may.

(03:59):
China's industrial production,beat estimates.
China's GDP matched forecasts.
But housing prices continued toplunge.
China's facing significantchallenges, raising questions
about whether it's growth model,which does depend on exports and
manufacturing investment.
Might be reaching its limits.
Even Chinese regulators areactively seeking feedback to

(04:23):
help sustain the market.
Rebound driven by recent fiscalpolicies aimed at boosting their
economy.
Well, it sounds like China is inquite an interesting place to
say the least.
Does this affect other areas ofthe world?
It certainly does Chris.
European countries have beenhurt by weaker trade with China.
Germany in particular has beenadversely impacted.

(04:47):
Germany itself accounts foralmost 50% of all European
exports, China.
The U S on the other hand isless effected.
With less than 10% of us exportsgoing to China.
Well, that's good to know thatthe us is less affected.
Before turning to this week.
Is there anything else you'dlike to add from last week?

(05:08):
Yes.
I would like to add that theEuropean central bank did cut
rates by a quarter point.
This appears to be the start ofa series of rate cuts until the
ECB reaches its terminal rate of2% in June.
In the United Kingdom.
Inflation fell below 2% for thefirst time in over three years.
Potentially signaling rate cutsare coming there as well.

(05:30):
Back in the U S jobless claimsfell.
Even as hurricanes and strikesat Boeing increased claims
expectations going into thatprint.
Uh, us earnings have offered aglimpse into the inner workings
of the us economy.
As a Friday, third quarterearnings growth stands at 3.4%
compared to the 4.4% that wasexpected.

(05:52):
There are bright spots asNetflix, Goldman Sachs, Morgan
Stanley and bank of America.
Our release results aboveexpectations.
Taiwan semiconductor reportedstrong margins and significant
year over year growth in bothrevenue and net income.
American Express's latest reportin a case that high-end
consumers preferences areshifting.

(06:13):
Shifting away from flashydesigner labels and are more
concerned now with value andsustainability.
Retail sales in the U S beatexpectations and highlighted a
resilience of consumer spending.
Which continues to supporteconomic growth in the United
States.
While there is broad basedgrowth across retail categories.

(06:34):
The us economy remains veryuneven.
With manufacturing incontraction, housing, frozen due
to rising interest rates.
And middle and low-incomehouseholds suffering from
inflation and the high cost ofdebt.
Overall.
It's a mixed bag.
With the growth stemming fromhigher income households in the
United States.

(06:55):
As always thank you, Scott.
It sounds like while there aresome highlights, the average us
consumer is feeling someincreased financial pressure.
So, what are you looking atthis.
A week.
This is a big week of earningswith 112 S and P 500 companies
reporting.
A couple of names.
I am focused on our Amazon andups.

(07:18):
Both companies are good gaugeson economic activity, consumer
behavior.
And ups is a good barometer forglobal trade.
We have another us manufacturingnumber in the Richmond fed
number Tuesday.
Additionally in the U S we haveexisting and new home sales.
Jobless claims and durablegoods.

(07:38):
Not to forget.
We have the federal reservesbeige book.
Where the fed provides anoverview of economic conditions.
And lastly, one of my absolutefavorites, the university of
Michigan's consumer sentimentreport.
I think next week we can discusshow that report is important to
my investment philosophy.
Well, we will certainly have tokeep an eye out for those

(08:00):
reports and I'm sure we willhave plenty to discuss next
Monday.
For now, thanks for tuning intoparamount wealth perspectives.
Stay informed.
Stay ahead.
And join us next week for morekey updates shaping the global
economy.